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Carbon costs

Taxes to rise to pay for Britain’s eco revolution

The Prime Minister has unveiled his carbon targets (pic: Downing Street)

Boris Johnson’s green revolution will come at a price as taxes are expected to rise to pay for the transition from fossil fuels.

The Treasury is preparing the country for how much it will cost to achieve the targets in the PM’s Net Zero strategy.

Rishi Sunak, the Chancellor, is already looking at a £37 billion-a-year black hole in its finances because of loss of revenue from fuel duty. More money will be needed to decarbonise the economy.

Heating bills are likely to rise – possibly by more than 50% – as households are forced to replace gas boilers.

New taxes such as road pricing are under consideration while poorly-insulated homes may struggle to qualify for a mortgage as lenders are forced to disclose the energy performance of properties on their books.

Rishi Sunak

Rishi Sunak: warning

Treasury analysis of the Net-Zero Strategy says the plans would mean “the loss of significant amounts of tax revenue as the economy shifts away from the use of fossil fuels”.

Fuel Duty and Vehicle Excise Duty will no longer applicable, and no explicit plans have been put forward to fill a £37billion gap left by these two taxes.

The Net Zero Strategy will see UK powered entirely by clean electricity by 2035, subject to security of supply, while also outlining plans for a wave of investment into wind power.

There are huge commitments to electric charging points, more wind power, and a three-year £450m Boiler Upgrade Scheme, which will see households able to apply for grants worth £5,000 to change their boilers to more environmental friendly heat pumps.

Analysis from the Treasury suggests the plans will blow a hole in the UK’s tax revenues and will require around £670 billion of combined private and public investment between 2026 and 2037.

“The largest impacts of the transition on the public finances will stem from permanent changes to behaviour that feed through to the tax system,” the Treasury said.

“Primary among these is the loss of significant amounts of tax revenue as the economy shifts away from the use of fossil fuels. This principally concerns revenues from Fuel Duty and Vehicle Excise Duty, amounting to £37bn in 2019-20 – equivalent to 1.7% of GDP.


“The government may need to consider changes to existing taxes and new sources of revenue throughout the transition in order to deliver net zero sustainably, and consistently with the government’s fiscal principles.” 

The tax implications coincide with inflationary pressures caused by shortages of labour and components.

Petrol prices have already risen by more than 26p per litre – nearly a quarter – in the past year, adding £14 to the cost of filling up a typical 55-litre family car.

Cafe, restaurant and pub prices are rising at 14-18% a year with the same to follow in supermarkets, Food and Drink Federation chief executive Ian Wright told MPs.

Interest rates are also expected to rise, possibly as early as next month.

See also:

Heat is on: a boiler company boss spells out the implications of changing our heating systems

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